Business Law

June 2023

Q1. Free Consent is an important essential element of a valid contract. Explain what is Free
Consent and the instances under which Free Consent in an agreement would be affected.
Please provide examples for each of such instance.

Ans

Introduction

Consent simply means an act of assenting to an offer. According to Sec. 13, “Two or more
persons are said to consent when they agree upon the same thing in the same sense” In English
law, this is called ‘consensus ad idem.’ Consent involves identity of minds in respect of the
subject-matter of the contract. When there is no consent at all, the agreement is void ab initio, i.e.
it is not enforceable at the option of either party.

Concept

Free Consent

Free consent is one of the essential elements of a valid contract. Section 14 describes the cases
when the consent is not free. This is a negative definition of free consent in the sense that it
mentions some negative elements, the presence of which in a contract would vitiate a contract.
Free consent refers to an agreement when both parties knowingly and willingly enter into a
contract of their own will. This includes agreeing to all of its terms and conditions and a mutual
level of understanding of the subject matter in the contract. For a contract to be enforceable and
sound, this consensus must have been gained free of any forms of coercion, cheating, undue
influence, fraud or pressure. In addition, the contract must be free of mistakes or
misrepresentation by both parties. If consent is gained by any of these means the contract is
considered void and unenforceable by law.

Instances Vitiating Free Consent

Following are the instances which impair the free consent of either party.

1) Coercion

Coercion means forcibly compelling a person to enter into a contract i.e., the consent of the party
is obtained by use of force or under a threat.

Section 15 of Indian contract act states “Coercion” is the committing, to threatening to commit,
any act forbidden by the Indian Penal Code (45 of 1860) or the unlawful detaining, or threatening
to detain, any property, to the prejudice of any person whatever, with the intention of causing any
person to enter into an agreement. If free consent vitiated by coercion than the contract can be
voidable at the wish of the party whose consent is not free.
For example, A threatens to hurt B if he does not sell his land to A for 5 lakh rupees. Here even if
B sells the house to A, it will not be a valid contract since B’s consent was obtained by coercion.
Now the effect of coercion is that it makes the contract voidable. This means the contract is
voidable at the option of the party whose consent was not free.

2) Under influence

The second factor which affects consent and makes it unfree, is undue influence. The term ‘undue
influence’ means the improper or unfair use of one’s superior power in order to obtain the
consent of a person who is in a weaker position. Section 16 of the Act contains the definition of
undue influence. It states that when the relations between the two parties are such that one party
is in a position to dominate the other party, and uses such influence to obtain an unfair advantage
of the other party it will be undue influence. The section also further describes how the person
can abuse his authority in the following two ways,

 When a person holds real or even apparent authority over the other person. Or if he is in a
fiduciary relationship with the other person

 He makes a contract with a person whose mental capacity is affected by age, illness or
distress. The unsoundness of mind can be temporary or permanent
Say for example A sold his gold watch for only Rs 500/- to his teacher B after his teacher
promised him good grades. Here the consent of A (adult) is not freely given, he was under the
influence of his teacher.

3) Fraud

Fraud simply means a wilful wrong representation of a fact made by a party to a contract with the
intention to deceive the other party or to induce him to enter into a contract. Fraud means deceit
by one of the parties, i.e. when one of the parties deliberately makes false statements.

For example, A bought a horse from B. B claims the horse can be used on the farm. Turns out the
horse is lame and A cannot use him on his farm. Here B knowingly deceived A and this will
amount to fraud.

4) Misrepresentation

Misrepresentation is also when a party makes a representation that is false, inaccurate, incorrect,
etc. The difference here is the misrepresentation is innocent, i.e. not intentional. The party making
the statement believes it to be true. Misrepresentation can be of three types

 A person makes a positive assertion believing it to be true

 Any breach of duty gives the person committing it an advantage by misleading another. But
the breach of duty is without any intent to deceive
 when one party causes the other party to make a mistake as to the subject matter of the
contract. But this is done innocently and not intentionally.

For example, suppose A and B enters into a contract, A an auto dealer lies about the accident
history of a used vehicle, and B sign a contract because he thought the car was never in a mishap
(but it was), then it might be measured as fraudulent misrepresentation.

Conclusion

Free Consent is mandatory to make an agreement a valid contract. The importance of free consent
cannot be stressed enough. Such consent must be free and voluntary in nature, without any sort of
pressure. If the consent to the agreement was obtained or induced by coercion, undue influence,
fraud, misrepresentation or mistake, then it has the potential to make the agreement void.

Q.2 Please highlight two (2) instances where the courts in India have intervened to protect
environment or prevent degradation/pollution of environment. Kindly note that the
instances should be real life cases.

Ans

Introduction

In recent years, there has been a sustained focus on the role played by the higher judiciary in
devising and monitoring the implementation of measures for pollution control, conservation of
forests and wildlife protection. Many of these judicial interventions have been triggered by the
persistent incoherence in policy-making as well as the lack of capacity-building amongst the
executive agencies. Devices such as Public Interest Litigation (PIL) have been prominently relied
upon to tackle environmental problems, and this approach has its supporters as well as critics.

Application

1) Tarun Bharat Sangh, Alwar v. Union of India [12]

 The petitioners have brought this PIL for enforcement of certain notifications under the
WPA, 1972; EPA, 1986; and various Forests Laws in areas declared as Reserved Forests
in Alwar District of Rajasthan.
 The area now more popular as the Sariska Tiger Park has been declared as the Game
Reserve, a Sanctuary, a National Park, a Reserved forests and a Protected Area.
 Thus it is very obvious that any mining activity in that area shall be contrary to and
impermissible as under the Forest Conservation Act of 1980
 The Government of Rajasthan has illegally and arbitrarily issued about 400 mining
licenses and thereby enabled them to carry on the mining operations- which according to
the petitioners will tend to degrade and diminish the ecology of the area.
 The Court after observing various laws and facts went on praising the importance and
beauty of the ecology and its resources and said that “every source from which man has
increased his power has been used to diminish the prospects of his successors.”
 The Court directed the Central Government to act under Sec 3 of the EPA, 1986 and
appoint a Committee to ensure the enforcement of the above laws and to prevent
devastation of the environment and wild life within the protected area. The committee
 shall access the damage alone to the environment and wildlife and make appropriate
recommendations to this Court as to ascertain the remedial measures.
 The Court further declared that no mining activity can be carried out in the said area.

2) M. C. Mehta v. Union of India [2] (Ganga River Pollution Case)

 On a PIL filed by the Mr. M. C. Mehta U/A 32 of Indian Constitution, it was observed by
the Supreme Court that water of River Ganga was highly toxic near Kanpur city- as the
Tanneries in the area were discharging their untreated effluents into the River.Also, nine
nallahs were discharging sewage effluents and sludge into the river. Similarly, dead
bodies and half-burnt bodies were also been thrown into the river. Also, the water supply
and sanitary conditions in the entire city was inadequate and not up to the marks of a
normal city.
 The petitioner demanded the issuance of a writ/order/direction to restrain the State of U.P
from letting out trade effluents into River Ganga.
 It was contended by the respondents that the Tanneries from the Kanpur city- due to their
lack of physical facilities and technical know-how and funds- it was not possible for them
to install the proper treatment facilities.
 The Court rejecting their contentions said that “the financial capacity of a tannery should
be considered irrelevant while requiring them to establish primary trea6tment plants…
Just like an industry which cannot pay minimum wages to its workers cannot be allowed
to exist, the tannerieswhich cannot set up a primary treatment plant cannot be permitted to
continue.”
 Further, the court observed that the contents of iron and manganese were higher from the
ISI limits of river water which was found to be very harmful for consumption.
 The court ordered the Tanneries which did not appeared before the court should stop
functioning and before they restart , they must install pre-treatment machineries for trade
effluents.
 Therefore, the court held the Kanpur Mahanagarpalika liable and also passed several
direction for the PCA (Prevention, Control and Abatement) of pollution of River Ganga,
some of which were:
 Increase of size of sewers in labor colonies;
 Construction of several numbers of latrines and urinals;
 Preventing the throwing the dead bodies and half-burnt bodies or ashes after Funeral
ceremonies into the river;
 Installing treatment plants in tanneries and other factories;
 Observe the ‘Keep the village clean week’
 Addition of slides relating to importance and purity of water in the theatre at the time of
intervals.

Conclusion

Thus, after the analysis of above cases, it can be concluded that the judiciary system is, at the
present time, stretching the different legal provisions for environmental protection. In this way,
the judiciary tries to fill in the gaps where there is laciness of the legislation. These new
innovations and developments in India by the judicial activism open the numerous approaches to
help the country. In India, the courts are extremely cognizant and cautious about the special
nature of environmental rights, considering that the loss of natural resources can’t be renewed.
There are some recommendations which need to be considered.
3. Gaurav is a new joinee in an organization and he has certain queries with respect to
employee related laws. He has been directed to reach out to you with the queries. Kindly
advise him:

a. As the organization deducts Provident Fund from the salary, can you please explain
applicability of the schemes under Provident Fund and how is the calculation and
apportionment of the Provident Fund done against various schemes?

Ans

Employee Provident fund

Employee Provident Fund, popularly known as PF is the retirement saving scheme available to all
the salaried employees, is backed by the government on which fixed interest is paid.
The employee provident fund is administered by the Employees Provident Fund Organization
(EPFO), a statutory body developed by the government of India under the Ministry of Labor and
Employment. It is formed to administer the mandatory contribution towards the PF scheme by
both the employees and employers. It is managed under the provisions of the Employee’s
Provident Fund and Miscellaneous Provisions Act 1952 and falls under the aegis of the Central
Board of Trustees (CBT). EPF contribution allows salaried employees to earn interest on their
contributions. As per the latest amendments, the current EPF interest rate stands at 8.15% for FY
2022 – 2023.

Schemes offered by Employees Provident Fund Organisation of India

The CBT currently operates and offers three schemes under its aegis. They are:

 The Employees’ Provident Funds Scheme 1952 (EPF)

 The Employees’ Deposit Linked Insurance Scheme 1976 (EDLI)
 The Employees’ Pension Scheme 1995 (EPS)

Employee’ Provident Fund Applicability

 Any business with more than 20 employees must mandatorily extend the EPF services to
their employees
 This scheme is available to all employees – even those working for organisations with
employee strength of less than 20. However, in this case, the enrollment will be
considered to be voluntary
 An employer must register for EPF within a month of employing more than 20
employers. Failure to do so could result in heavy penalties
 It is mandatory for salaried employees with an income of less than Rs.15,000 per month
to register for an EPF account.
 Employees who earn more than Rs.15,000 can also register for an EPF account; however,
they must get approval from the Assistant PF Commissioner.
Employer’s contribution towards different schemes

 Employees Provident Fund 3.67

 Employees' Pension Scheme (EPS) 8.33

 Employee's Deposit Link Insurance Scheme (EDLIS) 0.50

It is mandatory for the employee and the employer to make a EPF contribution. Each make a 12%
contribution of the employees' dearness allowance and basic salary towards EPF. Given below are the
details of the employees' and employers' contribution.

 Employee's contribution towards EPF - 12% of the employee's salary is deducted by the
Employer on a monthly basis for contribution towards EPF. The entire contribution goes towards
the EPF account.
 Employer's contribution towards EPF - The employer also contributes 12% of the employee's
salary towards EPF.

b. Who is entitled for Gratuity and how is the payout of gratuity calculated?

Ans

Introduction

Gratuity is a lump sum amount paid by the employer to the employee as a token of appreciation for the
services they have provided towards the company. It is important to know what are the eligibility and the
amount of gratuity that an employee will receive.

Concept

Gratuity

Gratuity is the monetary amount which is payable to the employee of an organisation under the Payment
of Gratuity Act 1972. This is mainly paid to the employee as a token of appreciation for his/her services
towards the company. Gratuity payment is one of the several components that make up the gross salary
of the employee. However, an employee is eligible to receive the gratuity amount only after they
complete a period of 5 or more years with the company. It is generally a token amount paid by the
company showing gratitude towards the employee for their services towards the organisation.

Eligibility criteria to receive gratuity

Here is the list to check if an employee is eligible to receive the gratuity amount from the employer
or not:
  They should be eligible for superannuation
 They resign after working for five years with a single employer
 They retire from work
 They suffer disability or pass away due to accident or illness

Calculation of Gratuity

Employers use a simple mathematical formula to calculate the gratuity amount they will be paying their
employee.
The gratuity formula is shown here:

Gratuity Amount = Y x S x 15/26

Where Y – Number of years worked in the organisation, S – Last drawn salary including DA

So for example, if an employee has been working for a company for 10 years and the last drawn basic
salary including DA is INR 20000, then the gratuity amount will be:

Gratuity Amount = 10 x 20000 x 15/26 = INR 1,15,385

The employer is free to provide the employee higher gratuity, but according to the Gratuity Act, the
amount cannot exceed Rs. 10 Lakhs. Anything above INR 10 lakhs, the amount is known is ex-gratia,
which is a voluntary contribution and not compulsorily imposed by any law.

To calculate the number of years for the gratuity calculation, anything above 6 months is rounded off
to the next number and anything below 6 months will be rounded off to the previous number. For
example, if you have worked at an organisation for 8 years and 7 months, then the number of years
will be calculated as 9 years whereas if an employee has worked for a company for 8 years and the
4 months, then it will be considered as 8 years only.